Which of the following best describes "earnest money" in a property transaction?

Earnest money is best described as a deposit made by the buyer to demonstrate their good faith and commitment to purchasing the property. This deposit is typically submitted along with an offer to purchase and serves as a sign of the buyer's serious intent to follow through with the transaction. By providing earnest money, the buyer is essentially assuring the seller that they are committed to completing the sale, which helps the seller feel more secure in accepting the offer.

In most cases, earnest money is held in an escrow account until the transaction is completed, at which point it is applied toward the buyer’s down payment or closing costs. If the deal falls through due to contingencies outlined in the contract, such as failing to secure financing or issues that arise during inspections, the earnest money can often be returned to the buyer.

This concept is pivotal in real estate transactions because it establishes trust between both parties. The more significant the earnest money deposit, the more persuasive it can be in negotiations, often indicating the buyer's seriousness.